The accompanying notes are an integral part of the unaudited consolidated financial statements.
The accompanying notes are an integral part of the unaudited consolidated financial statements.
The accompanying notes are an integral part of the unaudited consolidated financial statements.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES; GOING CONCERN
Business, Operations and Organization
Esio Water & Beverage Development Corp. was incorporated in Nevada in June 1988 as Richard Barrie Fragrances, Inc. Over the years, the Company changed its name several times, most recently from Tempco, Inc. to Esio Water & Beverage Development Corp. Esio Water & Beverage Development Corp. and its wholly-owned subsidiaries Net Edge Devices, LLC, an Arizona Limited Liability Company, and iMetabolic Corp, (“IMET”) a Nevada Corporation are hereinafter collectively referred to as the “Company.”
On March 16, 2015, the Company issued to the IMET 16 shareholders of record an aggregate of 60,000,000 shares, or 76.2% of the Company’s common stock. Prior to the close of the reverse merger, IMET had 10,000,000 common shares outstanding immediately prior to the merger and net liabilities of $20,500. Prior to closing, the predecessor company had 18,566,636 shares outstanding and net assets of $89,615, of which $85,378 was cash and $4,237 was non-cash. As a result of the closing of this transaction, IMET is now a wholly owned subsidiary of the Company and its business and operations represent those of the Company
For accounting purposes, this transaction is being accounted for as a reverse merger and has been treated as a recapitalization of the Company with IMET considered the accounting acquirer, and the financial statements of the accounting acquirer become the financial statements of the registrant. This transaction is hereinafter referred to as the “Reverse Merger.” The Company did not recognize goodwill or any intangible assets in connection with the transaction. The 60,000,000 common shares issued to the shareholders of IMET in conjunction with the share exchange transaction have been presented as outstanding for all periods.
On December 30, 2015, the Company filed Articles of Merger (the “Merger”) with the Nevada Secretary of State. The Merger was between the Company and our wholly-owned subsidiary, UPD Holding Corp. (the “Subsidiary”). Pursuant to Nevada corporate law, we amended our Articles of Incorporation by the Merger to change our name to UPD Holding Corp. We believe our new name more properly indicates our current lines of business because the Company has not been in the water and beverage industry since 2012. “UPD” stands for United Product Development.
On January 8, 2018, the Company filed an 8-K with the Securities and Exchange Commission on announcing the closing of its Agreement of Exchange and Plan of Reorganization dated December 31, 2017 between UPD Holding Corp. and Record Street Brewing (“RSB”). An audit of Record Street Brewing (“RSB”) is ongoing and expected to consummate not
later than March 15, 2018. Therefore, a possibility exists that certain financial aspects could be subject to revision.
Going Concern
The Company’s unaudited interim consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenue sufficient to cover its operating costs and allow it to continue as a going concern, has recurring net losses and net capital deficiency. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The December 31, 2017 financial statements do not include any adjustments that might be necessary if UPD Holding Corp. is unable to continue as a going concern.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plans to obtain such resources for the Company include (i) obtaining capital from management and significant stockholders sufficient to meet its minimal operating expenses; (ii) obtaining funding from outside sources through the sale of its debt and/or equity securities; and (iii) completing a merger with or acquisition of an existing operating company. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
Unaudited Interim Financial Statements
The accompanying unaudited interim consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with generally accepted accounting principles (“GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission and are unaudited. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the results for the interim periods presented have been made. The results for the six-month period ended December 31, 2017, may not be indicative of the results for the entire year. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2017 filed with the Securities and Exchange Commission on October 13, 2017.
The preparation of the Company’s unaudited interim consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however, actual results could differ materially from these estimates.
NOTE 2 – RELATED PARTY TRANSACTIONS
For the six months ended December 31, 2017, the President has provided the Company rent at no charge. We believe that the offices are adequate to meet our current operational requirements. We do not own any real property.
On September 1, 2016, through unanimous approval by its Board, the Company opened an escrow to initiate a proposed funding arrangement for future capital demands. The related party portion of this escrow consists of a $15,000 convertible Note held by the Company’s President which matured March 1, 2017. As a result of this date expiring, the President extended the maturity of the note to April 1, 2018. The company analyzed the extension under ASC 470-50 and concluded that this modification was not considered to be substantial. If not repaid by maturity, the note is convertible into 1,875,000 common shares at $0.0125 per share. If share conversion is not elected, then interest will be due in the amount of $15,000.
On December 31, 2017 when the Company acquired Record Street Brewing (“RSB), the Company assumed a note from a related party, Terie Ogle in the amount of $10,000. This note is currently held at zero percent interest, does not have a term and is unsecured. Also, on December 31, 2017 upon the acquisition of Record Street by the Company, two unsecured liabilities, without a term, representing outstanding payables were assumed on behalf of “RSB” shareholders, Corletto and Ogle in the amounts of $34,980 and $28,661, respectively.
The Company analyzed the conversion option in the notes for derivative accounting treatment under ASC Topic 815,
“Derivatives and Hedging”
and determined that the instrument does not qualify for derivative accounting.
NOTE 3 – STOCKHOLDERS’ EQUITY
Authorized Shares
At December 31, 2017, our authorized capital stock consists of 200,000,000 shares of Common Stock, par value of $.005, and 10,000,000 shares of Preferred Stock, par value $.01. The Company’s Board of Directors has the authority to divide the preferred stock shares into series and to fix the voting powers, designation, preference, and relative participating, option or other special rights, and the qualifications, limitations, or restrictions of the shares of any series so established.
Common Stock
At December 31, 2017 and June 30, 2017, there were 161,266,636 and 79,766,636 shares of Common Stock issued and outstanding, respectively.
At December 31, 2017, we had a total of 1,700,000 shares reserved for issuance pursuant to the 1,200,000 outstanding options and 500,000 outstanding warrants issued by the predecessor company. See
“Options and Warrants”
below for additional information.
On September 22, 2017, the Company entered into a consulting agreement with Sage Intergroup, Inc. for services related to investor relations. As part of this agreement, the Company issues 1.5M shares of the Issuer’s common stock, $0.005 par value. The value of the shares is $37,500 which is amortized over the 12-month term of the agreement. The Company accounted for $10,208 in stock-based compensation and the unamortized stock compensation expense as of December 31, 2017 is $27,292.
Preferred Stock
The Company has not issued any shares of preferred stock as of December 31, 2017.
Options and Warrants
The Company did not issue any options or warrants during the six months ended December 31, 2017.
As of March 16, 2015, the effective date of the Reverse Merger, the Company had 3,522,767 options outstanding pursuant to the predecessor company’s 1999 Equity Compensation Plan, of which 2,322,767 options have expired, leaving 1,200,000 options outstanding as of December 31, 2017. These remaining options have a life span to Q1 2019.
In addition, as of the effective date of the Reverse Merger, the Company had 8,155,478 warrants outstanding issued by the predecessor company. Since the Reverse Merger, 7,655,478 have expired and 500,000 remain. This remaining balance expires in Q1 2018.
Additional information about the predecessor company’s options and warrants and expense calculations can be found in that company’s financial statements contained in its Annual Report on Form 10-K filed with the SEC on October 14, 2014 and in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2017 filed with the Securities and Exchange Commission on October 13, 2017.
NOTE 4 – ACQUISITION
On December 31, 2017 the Company completed its acquisition of RSB
, a startup contract brewery based in Reno, NV
. The aggregate purchase price for the transaction was $1,600,000 of equity equal to 80,000,000 shares of the Company’s common stock based on a closing stock price of $0.02 per share on December 29, 2017.
The Company and RSB agreed to merge to increase the product portfolio of the Company. The Company gained control of RSB at the time of the acquisition through an exchange of 16,000 shares of the Company’s common stock per share outstanding of RSB. 100% of RSB’s voting equity was exchanged in the transaction. The transaction took place at the end of operations for the quarter and as such no revenue or earnings from RSB are included in the Consolidated Statements of Operations presented above.
The Company accounted for the transaction in accordance with ASC 805,
Business Combinations.
The total consideration given to the former members of RSB has been allocated to the assets acquired and liabilities assumed based on preliminary estimates of their estimated fair values as of the date of the acquisition. Because of the complexities involved with performing the valuation, the Company has recorded the tangible and intangible assets acquired and liabilities assumed based upon their preliminary fair values as of December 31, 2017. The preliminary measurements of fair value were based upon estimates of management and are subject to change within the measurement period (up to one year from the acquisition date). The Company expects appraisals of tangible and intangible assets and working capital adjustments to be finalized during the fourth quarter of fiscal 2018.
The following table summarizes the preliminary purchase price allocation based on the estimated fair values of the assets acquired and liabilities of RSB assumed at the acquisition date:
Consideration:
|
|
|
|
Fair value of equity consideration paid
|
|
$
|
1,600,000
|
|
|
|
|
|
|
Recognized preliminary amounts of identifiable assets acquired and (liabilities assumed), at fair value:
|
|
|
|
|
Cash
|
|
$
|
17,121
|
|
Current Assets
|
|
|
22,000
|
|
Furniture & Equipment
|
|
|
110,333
|
|
Identifiable intangible assets
|
|
|
1,243,462
|
|
Accounts payable
|
|
|
(89,895
|
)
|
Notes payable to related parties
|
|
|
(73,641
|
)
|
Other current liabilities
|
|
|
(360,000
|
)
|
Preliminary estimate of the fair value of assets acquired and liabilities assumed
|
|
|
869,380
|
|
Goodwill
|
|
|
730,620
|
|
Total purchase price
|
|
$
|
1,600,000
|
|
|
|
|
|
|
The fair value of the identifiable intangible assets was determined based on the following approaches:
Lease Purchase
– The value attributed to RSB’s Lease Purchase option was determined by fair market values over the current tenure of the existing lease purchase which survives until December 31, 2018.
Rent Abatement
– The value attributed to RSB’s Rent Abatement was determined by assessing the fair market value of the space over the course of 2018 which the current lease purchase agreement documents.
Licensing Agreement
– The value of RSB’s Licensing Agreement with Young’s Market was determined by examining operating metrics of small breweries.
The fair value of the intangible assets is being amortized using the straight-line method to general and administrative expenses over their useful lives.
In the course of management’s preliminary assessment of the intangible assets acquired it was estimated that the range of useful lives of intangible assets is 1-5 years.
Indefinite-lived intangible assets are not amortized, but instead are evaluated for potential impairment on an annual basis in accordance with the provisions of ASC Topic 350,
Intangibles—Goodwill and Other.
Goodwill of $730,620 arising from the acquisition consists of expected synergies as well as intangible assets that do not qualify for separate recognition. The goodwill acquired is expected to be deductible for income tax purposes.
Pro Forma Financial Information (unaudited):
The following unaudited pro forma consolidated results of operations for the three and six months ended December 31, 2017 and 2016, assumes that the acquisition of RSB occurred as of July 1, 2016. The unaudited pro forma financial information combines historical results of UPD Holding Corp. and RSB. The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal year 2017 or the results that may occur in the future:
|
|
Three Months Ended December 31,
|
|
|
Six Months Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net Sales
|
|
$
|
540
|
|
|
$
|
-
|
|
|
$
|
2,176
|
|
|
$
|
-
|
|
Net (loss) income
|
|
|
(413,408
|
)
|
|
|
(50,376
|
)
|
|
|
(519,343
|
)
|
|
|
(81,723
|
)
|
Net (loss) income attributable to UPD Holding Corp.
|
|
|
(281,985
|
)
|
|
|
(50,346
|
)
|
|
|
(315,832
|
)
|
|
|
(74,194
|
)
|
Basic and Diluted (loss) earnings per share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
NOTE 5 – NOTE
S
RECEIVABLE
The following notes were executed between Record Street Brewing (“RSB”) and the Company during the second quarter of
fiscal
2018, at the Index of Applicable Federal Rates (AFR) Rulings for each applicable month in question for the period of 12 months. As a result of the Company’s announcement on January 5, 2018, in a filed an 8-K with the Securities and Exchange Commission announcing the closing of its Agreement of Exchange and Plan of Reorganization dated December 31, 2017 between UPD Holding Corp. and Record Street Brewing (“RSB”), these notes were expensed as a result of said merger.
Date
|
|
Days
|
|
|
IRS | Fed
Rate
|
|
|
Amount |
Borrowed
|
|
|
10/1/2017
|
|
|
91
|
|
|
|
0.1270
|
|
|
$
|
15,000
|
|
|
10/5/2017
|
|
|
87
|
|
|
|
0.1270
|
|
|
$
|
5,000
|
|
|
10/17/2017
|
|
|
75
|
|
|
|
0.1270
|
|
|
$
|
10,000
|
|
|
10/23/2017
|
|
|
69
|
|
|
|
0.1270
|
|
|
$
|
5,495
|
|
|
11/7/2017
|
|
|
54
|
|
|
|
0.1380
|
|
|
$
|
35,000
|
|
|
11/28/2017
|
|
|
33
|
|
|
|
0.1380
|
|
|
$
|
82,500
|
|
|
12/1/2017
|
|
|
30
|
|
|
|
0.1520
|
|
|
$
|
16,569
|
|
|
12/11/2017
|
|
|
20
|
|
|
|
0.1520
|
|
|
$
|
7,500
|
|
|
12/22/2017
|
|
|
9
|
|
|
|
0.1520
|
|
|
$
|
5,000
|
|
|
12/28/2017
|
|
|
3
|
|
|
|
0.1520
|
|
|
$
|
17,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
199,064
|
|
|
NOTE 6 – CONVERTIBLE NOTES
On September 1, 2016, through unanimous approval by its Board, the Company opened an escrow to initiate a proposed funding arrangement for future capital demands. A single private placement provided $50,000 of this escrow in the form of a
n unsecured
convertible note. This convertible note matured on March 1, 2017. As a result of this date expiring, the single private placement has executed an extension taking the mature date out to April 1, 2018. If not repaid by maturity, the note is convertible into 4,000,000 common shares at $0.0125 per share. If share conversion is not elected, then interest will be due at the face value of the original note of $50,000.
In the second quarter ending December 31, 2017, the Company entered two (2)
, unsecured
Convertible Promissory Notes with investor Richard Wells totaling a principal sum of $75,000 each. The effective interest rate is 15%, with maturity dates of October 31, 2018 and November 18, 2018, effectively, at a conversion share price at $0.10 per share with an effective conversion to 862,500 shares, each, respectively. Additionally, the Company entered seven (7)
, unsecured
Convertible Promissory Notes with investors totaling a principal sum of $90,000. The effective interest rate is 12%, with various maturity dates out as far as December 27, 2018, at a conversion share price at $0.10 per share with an effective conversion to 1,008,000 shares. Details are as follows:
Date
|
|
Last
|
First
|
|
Amount
|
|
|
Shares
|
|
|
Rate
|
|
|
Total
w/Interest
|
|
|
Total
Convertible
|
|
Maturity
Date
|
10/10/2017
|
|
Wells
|
Richard
|
|
$
|
10,000
|
|
|
|
100000
|
|
|
|
0.12
|
|
|
$
|
11,200
|
|
|
|
112000
|
|
10/9/2018
|
11/1/2017
|
|
Wells
|
Richard
|
|
$
|
75,000
|
|
|
|
750000
|
|
|
|
0.15
|
|
|
$
|
86,250
|
|
|
|
862500
|
|
10/31/2018
|
11/3/2017
|
|
Richardson
|
Huxley
|
|
$
|
10,000
|
|
|
|
100000
|
|
|
|
0.12
|
|
|
$
|
11,200
|
|
|
|
112000
|
|
11/2/2018
|
11/13/2017
|
|
Wells
|
Richard
|
|
$
|
75,000
|
|
|
|
750000
|
|
|
|
0.15
|
|
|
$
|
86,250
|
|
|
|
862500
|
|
11/12/2018
|
11/16/2017
|
|
Heefner
|
Thomas
|
|
$
|
5,000
|
|
|
|
50000
|
|
|
|
0.12
|
|
|
$
|
5,600
|
|
|
|
56000
|
|
11/15/2018
|
11/17/2017
|
|
Richardson
|
Huxley
|
|
$
|
10,000
|
|
|
|
100000
|
|
|
|
0.12
|
|
|
$
|
11,200
|
|
|
|
112000
|
|
11/16/2018
|
12/21/2017
|
|
Heefner
|
Thomas
|
|
$
|
15,000
|
|
|
|
150000
|
|
|
|
0.12
|
|
|
$
|
16,800
|
|
|
|
168000
|
|
12/20/2018
|
12/22/2017
|
|
Richardson
|
Huxley
|
|
$
|
20,000
|
|
|
|
200000
|
|
|
|
0.12
|
|
|
$
|
22,400
|
|
|
|
224000
|
|
12/21/2018
|
12/28/2017
|
|
Heefner
|
Thomas
|
|
$
|
20,000
|
|
|
|
200000
|
|
|
|
0.12
|
|
|
$
|
22,400
|
|
|
|
224000
|
|
12/27/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
240,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,733,000
|
|
|
The Company analyzed the conversion option in the notes for derivative accounting treatment under ASC Topic 815,
“Derivatives and Hedging”
and determined that the instrument
s
do not qualify for derivative accounting.
The Company therefore performed an analysis to determine if the conversion option was subject to a beneficial conversion feature and determined that the instrument does have a beneficial conversion feature equivalent.
The conversion price is out-of-money on the issuance date of the note, thus there is no value to the beneficial conversion feature.
NOTE 7 – NOTE PAYABLE
On September 15, 2017, the Company entered into a Promissory Note. A single private placement provided $100,000 for funding of future projects and expenses. This
unsecured
note matures on September 15, 2018 with accrued interest equal to 12% per annum, calculated on the basis of a 365-day year and actual days elapsed, and thus is due and owing on the Maturity Date.
On December 31, 2017 when the Company acquired Record Street Brewing (“RSB), the Company assumed a note from Jason Klore in the amount of $10,000. This note is currently held at zero percent interest, does not have a term and is unsecured. Also, on December 31, 2107 upon the acquisition of Record Street by the Company, three additional unsecured liabilities were assumed. The first was executed on October 1, 2017 to Ian Maddan in the amount of $100,000, fixed at 12% interest for one (1) year. The second was executed on October 1, 2017 to Mike Maddan in the amount of $150,000, fixed at 12% interest for one (1) year. The third was executed on October 1, 2017 to Mike & Linda Maddan in the amount of $100,000, fixed at 18% interest for one (1) year.
NOTE 8 – SUBSEQUENT EVENTS
Between 1/1/2018 and 2/20/2018, the Company entered eleven (11) Convertible Promissory Notes with investors totaling a principal sum of $82,500. The effective interest rate is 12%, with various maturity dates out as far as February 14, 2019, at a conversion share price at $0.10 per share with an effective conversion to 924,000 shares.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
The following management discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited interim consolidated financial statements and related notes which are included in Item 1 of this Quarterly Report on Form 10-Q, and with our audited financial statements included in our Form 10-K for the fiscal year ended June 30, 2017, filed with the Securities and Exchange Commission on October 13, 2017.
Overview
Acquisition of iMetabolic Corp.
On December 31
,
2014, we entered into an Agreement of Share Exchange and Plan of Reorganization (the “Share Exchange Agreement”) and consummated a share exchange (the “Share Exchange”) with iMetabolic Corp. (“IMET”), a Nevada corporation. The Effective Date of the transaction was March 16, 2015 (the “Effective Date”) and resulted in the acquisition of IMET (the “Acquisition”). Pursuant to the terms of the Share Exchange Agreement, we acquired all of the outstanding capital stock of IMET from the 16 IMET shareholders for an aggregate of 60,000,000 shares, or 76.2% of the Company’s common stock.
As a result of the Share Exchange Agreement, the IMET shareholders transferred all their interest in IMET to the Company and, as a result, IMET became a wholly owned subsidiary of the Company.
As a further condition of the Share Exchange Agreement, the then current officers of the Company resigned on March 16, 2015 and Mark W. Conte was appointed President, CEO and a director of the Company, Kevin J. Pikero as CFO, Treasurer, Secretary, and a director and Andrew D. Smith as a director.
The IMET acquisition is discussed more fully in the Form 8-K we filed with the Securities and Exchange Commission (“SEC”) on March 20, 2015. Included as an exhibit to that Form 8-K is a copy of the Share Exchange Agreement.
Name Change
On December 30, 2015, the Company filed Articles of Merger (the “Merger”) with the Nevada Secretary of State. The Merger was between the Company and our wholly-owned subsidiary, UPD Holding Corp. (the “Subsidiary”). Pursuant to Nevada corporate law, we amended our Articles of Incorporation by the Merger to change our name to UPD Holding Corp. We believe our new name more properly indicates our current lines of business because the Company has not been in the water and beverage industry since 2012. “UPD” stands for United Product Development which is the name of one of our wholly-owned subsidiaries. On March 1, 2017, FINRA successfully grated the company a new trading symbol (UPDC).
IMET Products
IMET was formed on July 1, 2013 for the purpose of marketing products under the brand “iMetabolic” that were previously being sold by the brand’s licensor, International Metabolic Institute LLC (“IMI”), as well as to develop new products that would be specifically suited for a national marketing plan. IMI transferred certain product and trademark rights to IMET on July 22, 2013 (the “License”). The License was amended on March 16, 2015 to clarify IMET’s and IMI’s future rights. See
“IMET License Agreement”
below. The mission of IMET is to build upon preexisting brand equity and the expert copy and other literature authored by Dr. Kent Sasse as applied to the national launch of products with extraordinary profitability and novel market appeal.
A pre-existing line of five (5) soft-bound books authored by the founder of the iMetabolic brand, Dr. Kent Sasse, is available for sale under the brand “A Sasse Guide” on both the www.imetabolic.com and www.sasseguide.com websites. These books are titled: (i) Life-Changing Weight Loss; (ii) Doctor’s Orders – 101 Medically Proven Tips for Losing Weight; (iii) Outpatient Weight Loss Surgery – Safe and Successful Weight Loss with Modern Bariatric Surgery; (iv) Weight-Loss Surgery – Which One is Right for You?; and (v) After Weight Loss Surgery. Pursuant to the terms of the License Amendment these books will continue to be the property of and sold by IMI.
A pre-existing line of products, including, but not limited to, proprietary blend meal replacements, dietary specialty foods, and nutraceuticals, have been sold by IMI at IMI’s company store / doctor’s office pursuant to a reservation of rights in the License and online at www.imetabolic.com. An amendment to the License provides that after IMI has sold its entire inventory existing or ordered on March 16, 2015, IMI will not sell any more products which may be deemed to compete with IMET’s products.
IMET has developed the following four new products to be marketed:
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A new product concept to be marketed under the name iMetabolic “Catalyst”, which is intended to provide the essential vitamins and plant compounds that are necessary to aid in metabolic functions. Such ingredients include broad spectrum B-Complex Vitamins, as well as Green Tea Extract and Resveratrol (polyphenols).
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A new product concept to be marketed under the name iMetabolic “Mini-Meal”, which is intended to provide the essential whey protein isolate intake for a person who is on a four-to-five meal per day diet or needs a snack that will act as a low-calorie, high nutritional value appetite suppressant.
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A new product concept to be marketed under the name iMetabolic “Multi-Pro”, which is intended to provide the essential broad-spectrum vitamins and minerals that are typically marketed as “multi-vitamin supplements;” however, this product is specifically tailored to dovetail with the “Catalyst” so as to virtually eliminate the duplicate consumption of overlapping ingredients that routinely plagues supplement users.
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A new product concept to be marketed under the name iMetabolic “BittX.” This product is premised on the scientific theory that modern horticulture and food producers have systematically promoted foods that are sweet or lack bitterness, which is the flavor typically associated with foods that have the greatest health benefits. Accordingly, this product is intended to reform the body’s disposition toward bitter foods in a subtle, inoffensive way.
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We believe IMET’s current four products can be successfully marketed through the use of infomercials and have made progress with identifying a creator and producer for an infomercial to sell the products. Additionally, the Company is building a new website with e-commerce capabilities and plans to use SEO (search engine optimization), social media, e-mail marketing, and PPC (pay for click) venues as well to drive the business. However, there is no assurance IMET’s infomercial marketing strategy will be successful.
We have also investigated using regional distributors for our products and may use them in the future, on a region by region basis as working capital permits. The Company has identified some prospects and is working to move those prospects forward.
We believe IMET has located experienced nutrition and supplemental manufacturers who have indicated an interest and an ability to manufacture IMET’s initial four products. We have received written cost quotations from these manufactures and production timetables, as well. The Company is in the process of evaluating the best venue to move forward.
The Company was hopeful that it was going to be able to secure its new website, marketing program, and product manufacturing schedules to begin marketing our products within six months of the closing of the Exchange. In reality, these details are taking more time to prepare and thus the Company is now targeting some initial product and marketing launches in
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IMET License Agreement
IMET entered into a license with IMI, a Nevada limited liability company, on July 22, 2013 (the “License”). In the License, IMI granted to IMET the exclusive licenses to use, produce, market and sell: (i) five marks (the “Licensed Marks”); (ii) four books written by Dr. Sasse (the “Licensed Content”); and (iii) approximately 150 supplements and foods created and previously sold by IMI (the “Licensed Articles”). The Licensed Marks include the trademark “iMetabolic”; the domain name “www.imetabolic.com”; the trademark “iMetabolic Catalyst”; and a trademark and domain name related to Dr. Sasse. The License had a term of three years, commencing on July 1, 2013 (the “Initial Term”), with a provision stating that the term of the License would automatically become perpetual if IMET sold $3.0 Million of Licensed Content or Licensed Articles before July 1, 2016. As a result of this date passing, an extension was executed until December 31, 2018. IMET is to bear all expenses of the creation and sale of the Licensed Content and Licensed Articles. The License contains other provisions standard in licenses.
In conjunction with closing the Exchange, on March 16, 2015 IMI and IMET executed an amendment to the License (the “License Amendment”). In the License Amendment: (i) IMET returned to IMI all rights to the Licensed Content (Dr. Sasse’s books), the two Dr. Sasse Licensed Marks and all revenues from the sale of the Licensed Articles since July 1, 2013 through the date of closing the Exchange; (ii) the Initial Term was increased from three to four years; (iii) a provision was added stating that after the closing of the Exchange, IMI shall not sell any more of the Licensed Articles or any other products IMET deems as competing with the Licensed Articles; (iv) a provision was added stating that upon reaching the $3.0 Million milestone, IMI shall transfer and or assign to IMET the three remaining Licensed Marks; and (v) a provision was added stating that upon completion of the Initial Term, IMET shall have all rights, obligations, and burdens of enforcing the Licensed Marks.
During 2014, the trademark “iMetabolic” expired at the U.S. Patent and Trademark Office. In conjunction with the closing of the Exchange, IMI re-applied for that trademark and the service mark "iMetabolic" on December 16, 2014. In May 2015, we engaged Drinker, Biddle & Reath, LLP to correspond with the U.S. Patent and Trademark Office regarding our application. As of April 19, 2016, the Company was awarded Registration Number 4,941,531 in the Class 5 Category. Additionally, on September 6, 2016, the Company was awarded Registration Number 5,034,186 in the Class 44 Category. At this juncture, the Company has succeeded in reclaiming both marks for consideration in its future operations.
RESULTS OF OPERATIONS
General and Administrative Expenses
For the six months ended December 31, 2017 and 2016, we recorded operating expenses of $99,904 and $30,862, respectively. Both consist primarily of general and administrative expenses along with professional fees all of which are associated with maintaining the Company as a publicly traded entity.
Net Loss
For the six months ended December 31, 2017 and 2016, the company recorded a net of $107,393 and $74,174, respectively.
Liquidity and Capital Resources
At December 31, 2017, the Company does not currently engage in any business activities that generate cash flow. As of December 31, 2017, the Company had current assets of $107,869; current liabilities of $1,028,755; and positive working capital of $37,681.
On September 1, 2016, through unanimous approval by its Board, the Company opened a $65,000 escrow to initiate a proposed funding arrangement for future capital demands. This $65,000 escrow was funded by two private placements which have convertible notes associated with them (the “Notes”). These notes have since been extended at the same terms for an additional period of time moving the expiration to April 1, 2018. If share conversion is not elected, then interest will be due on the Notes in the amount of $65,000. At September 30, 2017, the Company had a total of 5,200,000 shares reserved for issuance upon conversion of the Notes. $15,000 of the $65,000 private placement was funded by the Company’s President.
Over the next twelve months, we have estimated that in order to maintain reporting company status as defined under the Securities Exchange Act of 1934, as amended, we will require cash for general and administrative expenses and professional fees, which include accounting, legal and other professional fees, as well as filing fees. We believe we will be able to meet these costs through the use of existing cash and cash equivalents or additional amounts, as necessary, to be loaned by or invested in us by our stockholders, management or other investors. However, no assurance can be given that we will be able to raise additional capital, when needed or at all, or that such capital, if available, will be on acceptable terms. In the absence of obtaining additional financing, we may be unable to fund our operations. As a result, the Company’s independent registered public accounting firm has issued going concern opinion on the consolidated financial statements of the Company for the fiscal year ended June 30, 2017.
Off-Balance Sheet Arrangements
During the six months ended December 31, 2017, we did not engage in any off-balance sheet arrangements set forth in Item 303(a) (4) of Regulation S-K.
Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require us to make estimates and judgments that significantly affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the consolidated financial statements.
Note 1
, “
Business, Basis of Presentation and Significant Accounting Policies
” in the Notes to the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2017 filed with the Securities and Exchange Commission on October 13, 2017, describes our significant accounting policies which are reviewed by management on a regular basis.
New Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.